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Introduction
Globalisation has influenced the contemporary business environment substantially due to the emergence of different market forces coupled with the unparalleled increment in the intensity of competition. Subsequently, firms have been forced to be competitive. Quintanilla and Ferner (2003) affirm that organisations adopt different HRM practices depending on their national settings.
Some of the factors that lead to the variation of HRM practices include governmental policies and regulations, competitive priorities, cultural idiosyncrasy, and the adoption of different managerial practices, for example quality management and Just In Time [JIT] (Ahmad & Schroeder 2003). Edwards and Rees (2011) emphasise that decision-making within organisations has become a complex process.
Despite this aspect, HRM practices influence an organisation’s outcome and survival, which underscores the importance of integrating ‘best practice’ model in HRM. Marinus and Kok (2003) define best practices as the high performance work practices that organisations should adopt as described by various HR systems and methods. The best practices lead to positive, universal, and additive effects on firms’ performance (Stahl & Bjorkman 2006).
In line with its growth objective, GSR Enterprises has identified Germany as one of the most attractive investment destinations in the Euro Zone. Subsequently, the firm is focused on entering the industry by establishing a subsidiary firm at Cologne, Germany.
This paper evaluates the relevant issues in international HRM [IHRM] that GSR Enterprise might experience in the German market. The analysis aims at providing GSR Enterprises with sufficient insight on how to establish operations successfully in the German market by adopting best HR practices and policies in its strategic management process.
The evaluation is based on a number of aspects, which include standardisation versus localisation of HR practices in entering a foreign market, the HRM approaches at GSR enterprises, issues affecting implementation of HRM, factors that might affect the transfer of best practices, and the alternative HRM approaches that GSR should consider whilst entering the German market.
Entry into the international market
Multinational Corporations operate in an intricate environment, as evidenced by the interplay amongst the concepts of standardising best practices, integrating the dominance of the parent company, and differentiation or responding to the local market demands (Zheng 2013). The prevailing labour, social, legal, and political conditions in the domestic and host country influence the HRM philosophy adopted by a multinational company.
The norms, values, and assumptions held by the parent company in the home country are embedded in the national system (Bloom & Reenen 2010). Thus, some companies attempt to export the HRM practices to their subsidiaries via the adoption of ‘best practices’, which enhances the transfer of managerial knowledge in the international market (O’Creevy & Gooderham 2005).
A study conducted by Walsh and Zhu in 2007 shows that most US multinational companies operating in China have adopted an individualised incentive pay system as opposed to the Japanese companies and this aspect reflects the dominance of the approaches adopted in the home country (Gilmore & Williams 2012).
Liu (2004) affirms that the HRM system must be confined within a specific environmental context. Moreover, the characteristics of the host country determine the HRM policies and practices. For example, subsidiaries operating in China face challenges in their efforts to integrate the HRM policies and practices of the parent company in the host country due to capitalistic assumptions.
Therefore, it is imperative for organisational leaders to evaluate the degree of fit between the host and the parent country. The closer the characteristics between the home and the host country, the easier it is to transfer the HRM practices of the parent company to the subsidiary firm (Campbell & Burton 2012).
Vo and Stanton (2011, p.3514) emphasise that the ‘balance between cross-national isomorphism and differentiation is affected by the home and host national business systems’. Understanding the prevailing national systems in the host country will influence the extent to which GSR Enterprises formulates optimal IHRM practices.
Kostova and Roth (2002) argue that the prevailing conditions in the host country influence the behaviours and attitudes of an organisation’s workforce. Despite the dominance of the home country effect within the international context, Gilmore and William (2012) contend that MNCs are forced to align their HRM practices in accordance with the host country’s institutional [legal] and cultural characteristics.
This assertion highlights that HRM practices in the international context tend to adopt a polycentric tendency, which limits the extent to which the MNCs can diffuse their HRM practices in the international context. Multinational companies must link their HRM practices to the existing legal and labour market structures. Some countries such as the United Kingdom are characterised with lightly regulated labour markets, which makes it easy for MNCs to transfer their HRM practices as opposed to other countries (Gilmore & William 2012).
HRM approach at GSR Enterprise
Beh and Loo (2013) cite the existence of a direct correlation between a firm’s performance and the adopted HRM policies and practices. Thus, the significance of adopting a set of optimal HRM practices or high performance work systems [HPWS] cannot be ignored.
Sims (2002, p.158) affirms that incorporating ‘optimal HRM practices, for example employee training and development, recruitment, and selection, performance appraisal, and career planning management is directly correlated with a firm’s performance’. GSR enterprise has integrated best practices into HRM in an effort to attain and sustain competitive advantage within the domestic market [UK].
Achieving high firm performance depends on the extent to which an organisation has developed sustainable competitive advantage, which can be assessed by evaluating the degree of uniqueness, the economic benefits generated, and extent of differentiation from competing firms (Stahl & Bjorkman 2006).
GSR Enterprises has attained an optimal performance in its domestic market due to the adoption of the universalistic HRM model. Beh and Loo (2013, p.157) affirms that the ‘universalistic perspective focuses on the best practices, which implies that firms will be excellent if they identify and adopt best practices in the way they manage people’. The firm is in a position to hire employees from the local labour market who are aligned with the company’s HR policies and strategies (Syed & Jamal 2012).
In its quest to penetrate the German market, GSR Enterprises intends to adopt the ethnocentric approach as its guiding HRM philosophy. This approach involves a situation whereby the subsidiaries established in the foreign market do not have the autonomy to make strategic decisions regarding their strategic HRM policies and practices.
On the contrary, the decisions are made at the headquarters in the home country (Tiwari 2013). However, standardising the HRM practices by adopting the ethnocentric approach in the host country might affect the firm’s performance adversely in the international market. Sengupta and Bhattacharya (2008) argue that the ethnocentric approach might affect the productivity of employees hired from the host country.
Incorporating the ethnocentric staffing approach might increase the rate of employee turnover, hence affecting the firm’s overall performance. Under the ethnocentric approach, expatriate managers are charged with the responsibility of overseeing operations of firms in the international market (Brewster & Mayrhofer 2011).
However, the expatriate managers might not be acquainted adequately with the host country. Geppert and Williams (2006) argue that expatriate managers might experience cultural myopia, which means that they might not understand the prevailing cultural differences between the home and the foreign country.
Rovai (2012) further affirms that the existence of cultural differences requires employees to adopt different approaches. Thus, they might take a substantial amount of time familiarising with the host country’s characteristics, which might lead to poor decisions, hence affecting the firm’s performance. In summary, replicating the HRM practices in the host country might affect the GSR Enterprises’ success in the German market.
Current issues in international HRM
One of major sources of challenges being experienced by MNCs in the strategic HRM practices entails existence of differences in national culture between the home and the host country (Lertxundi & Landeta 2012). Ahmad and Schroeder (2003) affirm that national culture significantly influences the behaviour and attitude of the workforce.
Studies conducted by Hofstede indicate existence of significant national culture differences across countries (Clark & Lengnick-Hall 2012). The UK and Germany are characterised by significant differences with regard to their national culture based on the six cultural dimensions stipulated by Geert Hofstede.
These dimensions relate to the degree of masculinity, pragmatism, indulgence, individualism, power distance, and uncertainty avoidance. However, the UK and Germany are characterised by a close fit with regard to some of the cultural dimensions, which include power distance and masculinity as illustrated below.
Table 1
Graph 1
Source: (The Hofstede Centre 2014)
National culture difference is a critical determinant on the effectiveness with which MNCs transfer HRM policies into the host country (Harzing & Pinnington 2011). Clark and Lengnick-Hall (2012) contend that findings of studies conducted by other scholars such as Hofstede, Tayeb, and Schneider have accentuated the fact that the HR policies and practices adopted by a particular organisation are embedded strongly in the national culture.
However, the degree to which the national culture is entrenched in organisations’ HR practices varies. This assertion stresses the importance of HR managers appreciating the prevailing cultural differences in the process of making strategic HR decisions.
Graph 1 above shows that the UK and Germany are characterised with significant differences with reference to the degree of individualism, indulgence, uncertainty avoidance, and pragmatism. The difference between the countries’ degrees of individualism might force GSR Enterprises to incorporate a culture of information sharing due to the lower individualism index in Germany (67) as compared to the UK (89), which indicates a relatively low level of interdependence in the society.
Moreover, the higher uncertainty avoidance index in Germany [65] as compared to the UK [35] might affect GSR Enterprises success in implementing organisational change. Therefore, by entering the German market, GSR Enterprises will be predisposed to diverse national culture, which requires the firm to adopt optimal strategic IHRM practices (Marchington & Wilkinson 2012).
Under the current ethnocentric approach, the firm might not penetrate the targeted international market successfully because its approach will force it to ignore the prevailing cultural differences. Aswathappa (2010) highlights that ethnocentrism forces firms to use the home culture as a metric in assessing the behaviour of the foreign culture.
Moreover, ethnocentrism makes organisations develop the perception that their home culture is more dominant as compared to the host country’s culture. Such an assessment can lead to prejudice within an organisation’s workforce, hence hindering the incorporation of ‘best practices’ in HRM. Therefore, GSR Enterprises might experience a major obstacle in its quest to promote multiculturalism, which is a fundamental aspect in the firm’s pursuit for long-term excellence.
Vodafone, which is a UK-based firm, successfully entered the German market by merging with Germany’s Mannesmann in 2000. However, the firm encountered significant challenges due to the existing cross-border cultural differences between Germany and the UK.
Mannesmann had adopted a hierarchical decision-making culture and rigid HRM policies in accordance with the German culture. On the contrary, Vodafone had an open communication policy in line with the country’s culture. However, the firm was in a position to enter the market by conducting cultural due diligence during the merger (Livermore 2010).
Subsequently, Vodafone adjusted its HRM policies successfully, hence aligning its HRM practices with the prevailing national culture (Ahlstrom & Bruton 2010). On the contrary, Wal-Mart’s effort to enter the German market by adopting the anti-union stance affected its penetration adversely. The company ignored the fact that unions are highly appreciated in Germany as opposed to the US.
This aspect affected the company’s public relations effort. Livermore (2010) argues that Wal-Mart incurred an estimated loss of $ 1 billion. In order to improve the chances of survival, the firm was forced to adopt the prevailing local conditions in Germany.
Factors that might affect transfer of best practices
Economic systems
Aquinas (2010) posits that economic systems vary from one country to another. Differences in economic systems are transferred to the HR practices adopted by different organisations. For example, companies in the developed companies such as the European countries are required to pay a substantial amount to departing employees as severance pay as opposed to less developed countries.
Furthermore, differences in economic systems also lead to variations with regard to the employers’ rights in the process of discharging employees (Aquinas 2010). Therefore, GSR Enterprises has a duty to ensure that its HRM policies such as employee compensation align with the Germany’s structure.
Legal factors
Different countries have adopted varying legal and industrial relations. For example, the employment policies and practices enacted in the United Kingdom vary from those of Germany. Therefore, it is imperative for companies intending to enter the international market to conduct an extensive evaluation on the prevailing international labour relations.
Despite the existence of international labour relations, it is imperative for organisational leaders to appreciate the prevailing historical differences with regard to labour and industrial relations between the host and the home country (Aquinas 2010). In order to succeed in the German market, GSR Enterprises will be required to adjust its HRM policies and practices to the prevailing legal systems in the country.
Alternative HRM approaches
In a bid to improve the new subsidiaries chances of survival in the German market, it is imperative for GSR Enterprises to incorporate the most effective HRM approaches in order to deal with the external environment and the institutional factors.
Thus, the firm will increase the likelihood of infusing best HRM practices. Some of the approaches that the firm should consider are discussed herein.
Best fit or contingency approach
One of the most effective HR approaches that GSR Enterprises should consider entails the contingency/best fit model. GSR Enterprises should be cognisant of changes emanating from the business environment and their likely impact on its operations.
Thus, the firm should integrate the contingency or best-fit approach, which underscores the importance of aligning the HR practices and strategy to the prevailing environment in which it operates. Porter, Smith, and Fagg (2007, p.9) contend that improved ‘business performance is attained only when HR strategies support the organisation’s choice of competitive strategy’.
According to Ehnert (2009), the best-fit model underscores the importance of establishing strong horizontal and vertical fit in organisation’s operations in order to enhance performance. GSR Enterprises can attain horizontal fit by establishing a link between the various HR activities while vertical fit is attained by aligning HRM with the organisation’s strategic goals.
Ehnert (2009) emphasises that the best-fit approach is characterised by two main elements, which include the internal and external fit. The external fit emphases on the significance of linking the operational strategy and the marketing strategy.
Conversely, internal fit ensures that the human resource practices and policies adopted by an organisation are implemented coherently. This aspect means that the HR practices and policies should not work in the opposite direction in order to maximise outcome. For example, if the organisation has integrated the concept of teamwork, it must avoid rewarding individual performance (Dowling, Festing & Engle 2008).
Polycentric approach
Considering the firm’s commitment in upholding its ‘best practices’ within the newly established subsidiary in Germany, it is imperative for the management team to balance the HR practices adopted in the home and the host country by incorporating the concept of polycentrism, which advocates tolerance to varying cultural beliefs, values, and norms.
Under this approach, GSR enterprises will be in a position to hire employees from the local market to head the subsidiary’s operations. However, GSR Enterprises will be required to conduct a comprehensive training on candidates selected from the host country in order to influence them with adequate knowledge on the company’s culture (Sengupta & Bhattacharya 2008).
Regiocentric approach
This approach entails adopting the international HRM practices to the prevailing region. In this case, GSR Enterprises should integrate the IHRM policies as stipulated by the European Union because the two countries are members of the union. The regiocentric approach will enable GSR enterprises to outsource human capital from the EU labour market, hence increasing the likelihood of developing a global perspective.
Conclusion
The analysis above highlights the existence of cross border differences as one of the major issues that GSR Enterprises should consider in its entry into the German market. Differences in the business environments between the two countries highlight the importance of GSR Enterprises understanding of the target host country prior to its entry in order to adjust its HRM practices optimally.
The HRM practices adopted by GSR Enterprises in the host country will influence its long-term success. Therefore, GSR Enterprises should adopt the most effective HRM approach such as the contingency or best-fit model. This model will enable the organisation to establish a strong link between the firm’s HRM policies and strategies with the internal and the external business environments.
Alternatively, GSR Enterprises should integrate polycentric and regiocentric approaches in its international HRM practices. Polycentric approach will enable the firm to balance between the best practices in the host and the home country while regiocentric approach will ensure that the organisation’s HRM practices align with the requirements of HRM practices as stipulated by the Euro Zone member countries.
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